International Monetary Fund (IMF) Regional Economic Outlook Report on Africa has projected that Sub Saharan Africa economies will grow from 2.8 percent in 2017 to 3.4 percent in 2018 on average, with growth accelerating in about two-thirds of the countries in the region aided by stronger global growth, higher commodity prices, and improved capital market access.
The report, released at the beginning of this month, says the region is set to enjoy a modest growth uptick and that decisive policies are needed to both reduce vulnerabilities and raise medium-term growth prospects. “On current policies, average growth in the region is expected to plateau below 4 percent barely 1 percent in per capita terms over the medium term highlighting the need for deliberate actions to boost growth potential,” reads the report.
According to the Washington based Global Economic Policy think tank, turning the current recovery into sustained strong growth consistent with the achievement of the SDGs would require policies to both reduce vulnerabilities and raise medium-term growth prospects. The report further highlights that prudent fiscal policy was needed to rein in public debt, while monetary policy must be geared toward ensuring low inflation.
According to the organization, the growth pickup has been also driven by a more supportive external environment; while external imbalances have narrowed, the record on fiscal consolidation has been mixed and vulnerabilities are rising as about 40 percent of low-income countries in the region are now assessed as being in debt distress or at high risk of debt distress. Domestic revenue mobilization is one of the most pressing policy challenges facing sub-Saharan African countries.
The IMF says almost all African countries are seeking to raise revenue to make progress toward their sustainable development goals while preserving fiscal sustainability. The IMF also observes that despite substantial progress in the revenue mobilization, sub- Saharan Africa was still one of the regions with the lowest revenue-to-GDP ratio.
Case studies of successful revenue mobilization episodes in the region highlight the importance of medium term revenue strategies to strengthen the basic building blocks of effective tax administration, emphasizing efforts to broaden tax base and mobilizing institutional processes. “Developing new sources of taxation such as property tax and harnessing new technologies that could facilitate access to more reliable information are also important.
Moreover since the revenue mobilization is a process that needs to be successful,” commented Janoslaw Wleczork one of the IMF Africa lead Economic Researchers. Wleczork shares that while the reasons may vary according to country-specific circumstances, there are three aspects of domestic revenue mobilization that make it so important.
The report also underscores that private investment in sub-Saharan Africa is low compared to other countries with similar levels of economic development. “The low level of private investment is constraining the region’s efforts to improve social outcomes by holding back labor productivity and the resulting gains in real wages and households’ income.”
The IMF also emphasizes private investment as a critical factor for the region to achieve sustainable growth and improve social outcomes over the medium term. “While public investment in the region is a similar level to other regions of the world, private investment in sub-Saharan Africa lags well below other regions. As such reforms such as Public –Private Partnerships (PPP), Special Economic Zones (SEZs) and proper mechanism to attract foreign direct investment needed to be given more attention,” underscores the report.
IMF also highlights that PPPs need to be considered carefully in view of the risks, advising that proper management of PPPs requires the adopting of institutional and legal frameworks to asses and limit risks as such projects often entrain contingent liabilities. The IMF also says that while SEZs can, in some cases be successful in attracting investors to the region, they benefit their economies more where they establish strong links with host country firms and become better integrated in the national and regional development strategies.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”